I posted this over at the elderscrolls forums but no one has replied yet so I figured I'd post it over here too.
I think I've found a fix for the water problem when using uGridsToLoad to improve texture quality. Make sure that you've got uNumDepthGrids set to 3 (the default value), then set bUseWaterDepth=0.
the only thing I've noticed so far is that some of the distant water reflections look wrong, but I'm not sure that's caused by bUseWaterDepth=0. Anyone want to give it a try and let me know how it works? I've still got a lot of testing to do.